(Adds analyst reaction, details about Lilly pipeline beginning
in 13th paragraph.)
By Peter Loftus
Eli Lilly & Co.'s (LLY) fourth-quarter earnings rose 28%, as
higher sales of an antidepressant and a cancer drug helped lift
overall revenue.
The Indianapolis-based drug maker continued its string of
relatively good financial reports, but Lilly's outlook is shaky
because it faces a wave of patent expirations that will expose its
best-selling drugs to generic competition in coming years,
including the blockbuster antipsychotic Zyprexa beginning in
October.
Compounding its challenges, Lilly has suffered a series of
research and regulatory setbacks that have hampered efforts to
bring new products to market to replace the lost revenue. Lilly is
relying on delivering new products from its research labs and
modest-sized license deals and acquisitions, and has vowed to avoid
a large-scale merger.
Lilly and other drug makers are also facing external challenges,
including new costs associated with the implementation of the U.S.
health-care overhaul, price cuts imposed by European national
health programs, and tough regulatory hurdles for new products.
Earlier this week executives from Johnson & Johnson (JNJ) and
Abbott Laboratories (ABT) said the environment for health-care
companies was getting more difficult.
"We do see opportunities but we're looking at the external
environment with some caution," Lilly Chief Executive John
Lechleiter said in an interview Thursday. He said Lilly has had
strong sales growth in Japan and emerging markets, and in its
animal-health unit, which is partly mitigating the challenges.
The new health-care overhaul requires drug makers to pay higher
rebates to government health programs, new fees, and funding for
the Medicare prescription drug benefit. Lechleiter said these new
requirements are expected to cut Lilly's 2011 sales by $400 million
to $500 million, and to increase operating expenses by about $150
million to $200 million.
For the fourth quarter, Lilly reported a profit of $1.17
billion, or $1.05 a share, up from $915.4 million, or 83 cents a
share, a year earlier. Excluding items such as asset impairments
and restructuring charges, earnings rose to $1.11 from 91 cents,
beating the mean estimate of analysts surveyed by Thomson Reuters
by a penny.
Revenue rose 4% to $6.19 billion, also exceeding the Thomson
estimate, helped by a 3% increase in volume as well as higher
prices, the company said.
Zyprexa sales fell 2% to $1.3 billion. Sales should drop sharply
later in the year when generic versions become available. "We're
planning on a very significant and rapid erosion," Lechleiter
said.
Sales of antidepressant Cymbalta rose 19% to $985 million, while
cancer drug Alimta was up 9% at $569 million. Sales of cancer drug
Gemzar dropped 22% due to generic competition.
Lilly predicted its earnings for 2011 would be $3.92 to $4.07 a
share, or $4.15 to $4.30 per share excluding items. Analysts
surveyed by Thomson Reuters most recently expected $4.29.
Lilly's 2010 earnings were $4.58 a share, or $4.74 excluding
items, near the top if its previous forecast range.
Credit Suisse analyst Catherine Arnold said in a research note
the 2011 forecast may come as a relief to investors, given that the
Zyprexa patent expiration is expected to hurt results later this
year.
Lilly's pipeline setbacks have included the discontinuation of
studies of an experimental Alzheimer's disease drug, and a delay in
regulatory approval for diabetes drug Bydureon, which Lilly has
co-developed with Amylin Pharmaceuticals Inc. (AMLN) and Alkermes
Inc. (ALKS).
Lilly also disclosed Thursday it was discontinuing development
of an experimental insomnia drug, which it called a "business
decision," and not related to any safety findings.
On the positive side, Lilly said it has decided to begin
late-stage studies later this year on an experimental schizophrenia
drug. Also, Amylin on Thursday disclosed the design for a study
related to Bydureon to address FDA concerns, and said FDA has
approved the protocol.
-Peter Loftus, Dow Jones Newswires; +1-215-656-8289;
peter.loftus@dowjones.com
-Nathan Becker contributed to this article